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High-definition television has become a staple in a growing number of households. More than 10 million homes worldwide now have HDTVs and that number will reach 52 million in 2009, according to market research firm In-Stat.
HDTV's growing acceptance has created a ripple effect resulting in the emergence of a new video coder/decoder (codec) standard: MPEG4 H.264. The standard is now being used by service providers to deliver broadband video programming to consumers, and longer term it is expected to change the way cell phones, desktop PCs, and handheld computers handle video transmissions. "Eventually, most high definition content will be transmitted using MPEG H.264 compression," stated Michelle Abraham, a principal analyst at market research firm In-Stat.
A couple of factors are fueling the interest in HD video services. Cable companies and satellite service providers are under pressure to increase revenue and differentiate their services, and HD channels have become an important weapon in this battle.
Show Me the Money
Cable and satellite television service suppliers are able to charge customers more for HD channels than regular channels. "Since carriers charge a premium for HD channels, adding more HD channels to their services represents a simple way to increase revenue," noted Kurt Scherf, an industry analyst with Park Associates. A few years ago, service providers started off by delivering a handful of HD channels to consumers, but they have expanded selections so many of the services now carry at least a dozen HD channels.
Initially HD services revolved around special content, such as sports and movies. "As soon as football season starts, a number of individuals purchase HD televisions and sign up for HD video services," said Paul O'Donovan, a program analyst at Gartner (NYSE: IT) 
Group. Recently, HD content moved into the mainstream: Fox Broadcasting Co., for example, offers HD versions of growing number of its popular shows, such as "24."
Another attraction is customers like the new services: "Once consumers have seen an event or two in high definition television, they do not want to go back to traditional television," Gartner Group's O'Donohue told TechNewsWorld.
Analysts compared this desire to the emergence a few years ago of digital video recorders (DVRs), such as the popular TiVo (Nasdaq: TIVO) service, which enables consumers to watch content without commercial interruptions at their leisure. Initially, demand for that service was so strong that some consumers waited for as long as one year DVR services and paid as much as $1,000 for DVR units.
HD as Bandwidth Hog
While HDTV represents an alluring feature for video service providers, they face a few challenges in delivering that content. In order to pump these shows down to consumers, service providers need a lot of bandwidth: typically 25 million bytes is what is needed for each HD channel. As a result when providers add more HD channels, they face huge increases in network utilization.
Aware of this change, vendors started working a few years ago on new video compression techniques. As is often the case, a couple of standards emerged. In the spring of 2003, the International Telecommunications Union's Telecommunications Committee (ITU-T) ratified the MPEG H.264 spec, which offers a three to one compression rate, so service providers' bandwidth requirements drop to the 8 million to 9 million bytes per HD channel range. At that time, Microsoft (Nasdaq: MSFT) began to tout a proprietary video compression option, dubbed Windows Media Video (WMV), and started to bundle it in its media player.
While the moves seemed to foreshadow a standards wrangle, that has not turned out to be the case --at least up for now. "Microsoft seems to have backed off promoting WMV, so the industry is moving toward adoption of MPEG H.264," noted Gartner Group's O'Donohue.
Cable and Satellite Service Support Grows
Indeed, support 
for that standard is starting to show up in a variety of places. Cable and satellite television service providers, such as Comcast (Nasdaq: CMCSK) , Echostar Communications and The DirecTV Group. Companies have begun to upgrade their own Wide Area Network codecs and switches as well as customers' set top boxes and DVRs with MPEG H.264 support.
While MPEG4.H264 offers service providers many benefits, it also presents them with a few challenges. The standard is new, and suppliers are still getting the kinks out of various interoperability issues. Also, service providers have invested a significant amount of time and money in building networks that support MPEG2 transmissions and need to offer customers an easy way to upgrade to the new services.
Consequently, movement to the new standard may take some time. "Currently, there is a lot of buzz about MPEG H.264, but many carriers are still conducting trails and tests rather than rolling out commercial services," noted In-Stat's Abraham. The market research firm projects that 8 million H.264 codecs will be sold in the U.S. in 2006 but notes that sales of MPEG2 systems will continue to rise through 2009.
As MPEG4 H.264's impact on the video market expands, its tentacles are reaching out to other market sectors. "Sony has already started to integrate MPEG 4 H.261 support into its Playstation game console," noted Parks Associates ' Scherf.
Apple Computer (Nasdaq: AAPL) has added H.264 support to its Macintosh operating system. Eventually analysts expect mobile phones, camcorders, and DVD disks to support the new standard. "As users move to HD content, a new compression technique will be needed, and H.264 seems like the one most likely to fill that void," concluded Gartner Group's O'Donohue.
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